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Finance Ministry Caps Arbitration Value at ₹10 Crore

In a bid to streamline dispute resolution involving government or public sector enterprises (PSEs), the Finance Ministry has set a cap of ₹10 crore for arbitration cases. This move aims to mitigate the perceived challenges of lengthy proceedings and potential misconduct among arbitrators. The Ministry also advises against automatically including arbitration clauses in large government contracts, emphasizing mediation and judicial adjudication as viable alternatives.

Government’s Arbitration Directive

The Finance Ministry’s recent directive limits arbitration to disputes under ₹10 crore involving government entities or PSEs. This decision underscores concerns about the cost and duration of arbitration, as well as issues related to the integrity of arbitral processes. The directive urges ministries and states to refrain from mandating arbitration in large-scale procurements, advocating instead for more judicious contract management practices.

Judicial Perspective on Arbitration

Despite the Ministry’s cautionary stance, Chief Justice of India DY Chandrachud has advocated for arbitration as the preferred method for resolving commercial disputes. He highlighted its role in enhancing India’s standing as an international arbitration destination. However, recent high-profile arbitration cases, such as those involving Antrix Corporation and Delhi Metro, have underscored bureaucratic concerns and shaped current arbitration policy.

Balancing Arbitration and Judicial Remedies

While promoting mediation alongside arbitration, the Finance Ministry’s memorandum acknowledges the challenges of solely relying on arbitration for resolving high-stakes commercial disputes. This cautious approach reflects ongoing efforts to refine India’s arbitration framework, balancing efficiency with transparency and accountability.

Legal Community’s Response

Legal experts have expressed mixed views on the Ministry’s directive, with some cautioning against undermining arbitration’s role in resolving complex commercial disputes efficiently. They argue for continuous improvement in India’s arbitration regime to address concerns while maintaining its relevance in the global legal landscape.

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